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4 Project Finance: “a non-recourse or limited recourse financing structure in which debt, equity and credit enhancement are combined for the construction and operation, or refinancing, of a particular facility in a capital-intensive industry” Source: An Introduction to Project Finance – Andrew Fight Project Finance is particularly suitable for the construction of facilities owned by joint venture partnersips

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5 1. Project Finance Classical Project Financing Special Purpose CompanySpecial Purpose Company Established to develop, own & operate an “asset” Limited RecourseLimited Recourse Cash flow generated from the defined asset is the only source of debt repayment with only limited recourse to the “sponsors” Structured FinancingStructured Financing Risks identified through comprehensive due diligence and mitigated through both contractual structure (construction / operation / supply / offtake/ logistics etc) and asset security Long Term FinancingLong Term Financing Process can be cumbersome / time consuming but delivers long term (often) leveraged financing

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10 2. Liquified Natural Gas - LNG  Natural gas which has been reduced to a liquid state by cooling it to a sub-zero temperature (-162°C). 600 times its liquid volume.  As the vapour warms to -107°C, it becomes lighter than air and will dissipate. When exposed to atmospheric temperatures and pressures, it vaporizes to about 600 times its liquid volume.  Liquefaction process removes the oxygen, carbon dioxide, sulphur compounds, other trace impurities and water.  LNG is composed of around 90% methane, along with small quantities of ethane, propane, butane and less than 1% nitrogen.  1 million tonnes of LNG = 1.38 bcm or 48.7 bcf or 1.23 mtoe

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12 2. Liquified Natural Gas - LNG But ……… its expensive. There are 4 main price components of an LNG Project prior to the marketing the gas (i.e. from the gas field to the receiving terminal): 1.Gas Production: From the reservoir to the LNG plant including gas processing and associated pipelines (15-20% of costs). 2.Liquefaction Plant: Gas treating, liquefaction, LPG and condensate recovery. LNG loading and storage (30-45% of costs). 3.LNG Shipping: (10-30% of costs) 4.Receiving Terminal: Unloading, storage, regasification and distribution (15-25% of costs).

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13 3.Financing the LNG “Value Chain”

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14 3. LNG Financing  The LNG supply chain offers an opportunity to provide financing for one or more segments.  Historically, the upstream and liquefaction segments have been treated as “one” project with shipping and regasification financed separately.  Each segment has a unique risk, however, each is also dependent on the entire supply chain.

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15 3. LNG Financing  In 2005 there was 142 mtpa of Global LNG export capacity.  By 2010 there will be almost 300 mtpa of Global export capacity.  The International Energy Agency estimates over $250 billion will be spent by the gas industry over 30 years for LNG projects.  Projects usually developed jointly by National Oil Companies with International Oil Companies

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23 4. Case Study – Qatargas II  A Joint Venture between Qatar Petroleum (70%) and Exxon Mobil Corporation (30%) for the production and supply of LNG to the United Kingdom, involving: he development of a two train LNG project (including associated onshore and offshore facilities) at Ras Laffan Industrial City, Qatar, for the production and supply of LNG, condensate, propane and butane (the “Upstream Project”); 1.The development of a two train LNG project (including associated onshore and offshore facilities) at Ras Laffan Industrial City, Qatar, for the production and supply of LNG, condensate, propane and butane (the “Upstream Project”); 2.The acquisition of the necessary LNG ships (the “Transportation Project”); and 3.The development of an LNG regasification terminal at Milford Haven in South Wales (the “Terminal Project”).

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27 4. Case Study – Qatargas II  The Upstream Project…… The largest non-associated gas field in the world

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28 4. Case Study – Qatargas II The largest LNG Facility in the world!  Each of Train I and Train II to have a production capacity of approximately 7.8 million tonnes per annum of LNG - The largest LNG Facility in the world!

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29 4. Case Study – Qatargas II  The Transportation Project…… Dedicated fleet of 8 large LNG (“LLNG”) carriers for each Train, each with a capacity of approximately 200,000 cubic metres.

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30 4. Case Study – Qatargas II  The Terminal Project…… L Located on the site of a decommissioned refinery in Milford Haven, Wales, with a protected deep-water harbour.

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33 4. Case Study – Qatargas II  The Upstream Project (US$4,963m): Traditional limited recourse Project Financing. Construction is “guaranteed” by the Sponsors. Once Construction Completion is achieved, Lenders take the risk that Qatargas II generates sufficient revenues to repay the debt. Revenues are generated by the sale of LNG to South Hook Gas.

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34 4. Case Study – Qatargas II  The Transportation Project: Qatar Gas Transport Company (“QGTC”) was established in June 2004 to facilitate the transportation of gas from the Qatargas and RasGas projects. Qatargas and RasGas have contracts to supply LNG to Europe and the USA for 25 years, and will lease the LNG tankers from Q-Gas for the duration of those agreements, ensuring a stable revenue stream for the company. QGTC is now the largest LNG shipping company in the world. By 2012, the company is expected to have acquired 77 LNG vessels to transport liquefied natural gas to Europe, Asia and the US. Total debt raised by QGTC specifically for the Qatargas Project totalled US$4.3bn